Unicorns : Meaning, Valuation & Examples

What are Unicorns?

Unicorns are defined as privately owned startups valued at more than $1 billion. A notable accomplishment for businesses, achieving unicorn status is an indication of their potential for success and quick expansion. A firm is often considered to have achieved broad market acceptability, robust revenue and user growth, and significant venture capital investment when it reaches a valuation of $1 billion or above.

• When a business reaches unicorn status, it indicates that it has the potential to succeed because of its wide market acceptance, rapid growth, and significant venture capital investment.
• While investors are drawn to unicorns by their promises of innovation and large profits, not all of them reach their full potential due to obstacles including management problems and competition.
• The current dynamic entrepreneurial landscape is reflected in the trend of firms striving for unicorn status.

The investment community is typically drawn to unicorns because of their revolutionary business concepts and promise of large returns. These businesses entice investors in the hopes that they will emerge as the next great success story, turning a healthy profit when they go public or are bought out by bigger organisations.

Features of Unicorns

1. Innovation and Creativity: Unicorn companies can transform the entire market by introducing creative products and services. Such products and services hold the potential to dominate the entire market by introducing a new line of products and distinguishing themselves from the rest.

2. Leaders: Looking at the fact that unicorns are the first to introduce innovative products and services, they become the ultimate leader, which gives them the power to create demand and influence the consumers on the way the products and services are consumed.

3. Technology Driven: Most of the unicorn companies are either Ed-tech and IT companies or are dependent largely on advanced technology. In other words, the success of unicorns is highly concentrated upon the impact of technology.

4. Social Media Dependence: The unicorn companies use social media as a way to increase their brand awareness and visibility as well as target consumers towards their products and services. The marketing strategies of a unicorn start-up are mostly done through the help of social media platforms such as WhatsApp, Facebook, Instagram, and Twitter.

5. Consumer-Focused: A unicorn company understands that consumer satisfaction is the ultimate survival of the business. If their consumers are happy, the business will automatically generate huge revenue. Therefore, the unicorns make sure that starting from the manufacturing to the selling and advertisement of goods, everything is customer-centric.

6. Growth: Along with generating profits, a business also aims to expand its business. Similarly, unicorn companies maintain a well-planned business plan and design proper strategies that aim to grow their business both geographically as well as introduce a new line of products.

Valuation of Unicorns

The market perception and financial status of unicorns—privately held firms valued at $1 billion or more, are significantly influenced by their valuation. The following variables affect these high-value startups’ valuations,

1. Revenue and Growth: The revenue and growth trajectory of unicorns are frequently used to evaluate them. Quick revenue growth and a track record of gaining a sizable market share are favourable factors in valuation.

2. The Market Potential: Investors assess unicorn firms’ potential for growth very carefully. A unicorn’s valuation may be raised by having a sizable addressable market and the capacity to grow operations.

3. Financial Health and Profitability: Although many unicorn businesses start off losing money, eventually they should turn a profit. Important factors in determining a company’s valuation include its financial stability, its capacity to produce positive cash flow, and its route to profitability.

4. Technology & Innovation: Disruptive business models and cutting-edge technology are two areas in which unicorns are frequently prized. Their products or services’ potential and originality might have a big influence on how much they are valued.

5. User Base and Engagement: A unicorn’s valuation may be impacted by the size and degree of engagement of its user base, especially for technology and consumer-focused businesses. Strong engagement metrics and large user numbers are frequently seen favourably.

6. Competitive Environment: A factor in value is the competitive environment. Businesses having a distinct competitive advantage or those with little rivalry may be valued more highly than unicorns.

7. Investor Mindset: The general attitude of investors as well as the state of the market may affect unicorn value. Higher valuations can be attributed to favourable market circumstances as well as a favourable image of the startup environment.

8. Capital Encounters: Throughout several investment rounds, unicorn valuations may change. The startup and investors negotiate conditions at each round, and the agreements reached add to the total valuation.

Factors on Which Success of Unicorns Depend

1. Use of Social Media : Social media plays a great role in the unicorn companies. Social media has helped unicorn companies to make the audience aware of the brand. In such a process, it becomes convenient for the unicorn companies to recognise and target the right segment of consumers in the market as well as reduce the advertisement cost by making use of online platforms for advertisement.

2. Customer Satisfaction: Consumers are the main keys to the success of the unicorn companies. Therefore, they cater to the needs and demands of their customers. The unicorn companies pay special attention to the user experience.

3. Business Growth: Unicorn companies adopt strategies that allow expansion of business globally in a short period. Such objectives are possible only when the business follows a well-planned approach.

4. Diverse Human Resources: Unicorn Company employs young professionals who are talented and experts in whatever they do. The business consists of human resources from different domains which creates a diversity in the ideas and functions.

5. Uncertainties: A business may either earn profits or incur losses. The changing business environments are such that it creates uncertainties for the organisations. Therefore, unicorns are ready to face whatever comes on their way.

Reasons for the Abnormally High Valuation of Unicorns

Numerous variables, representing both the potential and threats in the startup ecosystem, can be ascribed to the abnormally high values of unicorns, or privately owned firms valued at over $1 billion. The following are some of the main causes of these high valuations,

1. Possibility for Disruption: Unicorns frequently lead the way in technology innovation, launching game-changing goods and services that have the power to completely transform whole sectors. Due to investors’ perception that these businesses have the potential to completely transform established business models, they may give them significant value.

2. Flexibility: Startups that can grow quickly are frequently rewarded by investors. Typically, unicorns have a business strategy that enables them to develop rapidly, gaining a sizable portion of the market and significantly increasing revenue.

3. High Demand and Limited Supply for Investment: High-potential investment possibilities are scarce in the startup environment. Because of this, investors are eager to invest in potential firms when they arise, which results in competitive fundraising rounds and high valuations.

4. Strong Network Effects: In which the value of a good or service rises as more users or players join the platform, which is advantageous to some unicorns. Because of this, there is a positive feedback loop and a feeling of increased long-term worth.

5. Hype & Market Emotion: Exaggerated values may result from positive emotion and hype surrounding specific sectors or technology. Market excitement could occasionally surpass a unicorn’s core financial performance.

6. Fear of Missing Out: Investors may be motivated by FOMO (Fear of Missing Out), or the fear of missing out on the next great thing. During investment rounds, FOMO may trigger aggressive bidding, which would raise prices even further.

7. Low-Interest Rates and Plenty of Cash: Investors may be more ready to take on risk and commit cash to high-growth, high-potential businesses at times when interest rates are low and there is a plentiful supply of capital available, which raises valuations.

8. Pre-IPO Speculation: Investors frequently speculate and look forward to unicorns’ impending initial public offerings (IPOs). As a result, prices may rise as investors believe there will be large profits following the initial public offering.

What Sort of Companies Make Unicorns?

Unicorns, or privately held firms valued at more than $1 billion, are present in many different industries, although they are frequently concentrated in those that are distinguished by innovative business models, scalability, and rapid technical advancement. Categories of businesses that have attained unicorn status include the following,

1. Technology and Software: Companies in these fields account for a sizable portion of unicorns. This comprises companies that work with leading-edge technology such as cloud computing, software development, machine learning, artificial intelligence, and others.

2. E-commerce and Online Marketplaces: Businesses in this sector have attained unicorn status, especially those with creative business plans, intuitive platforms, and efficient supply chain management. This also includes online marketplaces that offer a smooth transactional experience for sellers and customers.

3. Biotech and Healthcare: Pioneers in the fields of biotechnology and healthcare frequently concentrate on creating ground-breaking medications, gadgets, or creative approaches to healthcare. These businesses could place a high priority on research and development.

4. Fintech (Financial Technology): As the fintech sector transforms the traditional financial industry, startups in this field, such as those providing digital banking, payment solutions, blockchain technology, and alternative lending platforms, have experienced considerable valuations.

5. Mobility and Transportation: Businesses that provide cutting-edge mobility solutions, such as ride-sharing, electric cars, and driverless vehicles, have drawn significant investment and become unicorns.

6. Consumer Services and Marketplaces: Unicorns in the consumer services industry might be platforms that provide consumers with distinctive and practical offerings like home services, meal delivery, and customised shopping trips.

7. Health and technology: It is a subsection of the larger healthcare industry that focuses on using technology to enhance digital health platforms, telemedicine, health information systems, and healthcare services.

8. Cybersecurity: Due to the growing significance of safeguarding data and digital assets, cybersecurity businesses that provide cutting-edge defences against cyberattacks have become unicorns.

9. Renewable Energy and Clean technology: As environmental concerns gain traction, businesses focused on renewable energy, clean technology, and sustainable energy solutions have attracted notice and become highly valued.

10. Entertainment and Multimedia: A few unicorns work in the entertainment and media sector, utilising technology to provide cutting-edge gaming platforms, streaming services, content, and other entertainment experiences.

Top 10 Most Valuable Unicorns in India

S.No.	Company Name	Sector	Entry Valuation ($B)	Current Valuation ($B)	Date of Entry	Location	Major Investors
1	Flipkart	E-Commerce	1	37.6	Feb-2012	Bangalore/ Singapore	Accel, Tiger Global, Naspers, SoftBank, Tencent
2	PhonePe	Fintech-Payments	5.5	12	Dec-2020	Bangalore	Tiger Global, Tencent
3	OYO Rooms	Proptech – Hotel Booking	4.9	9.6	Sep-2018	Gurgaon	Lightspeed Ventures, Sequoia Capital, SoftBank
4	Dream 11	Gaming	1	8	Apr-2019	Mumbai	Kalaari Capital, Tencent, Multiples PE, Steadview, Alpha Wave Global
5	Swiggy	Foodtech	1.4	7.85	Jun-2018	Bangalore	Accel, Elevation Capital, Norwest, Naspers, Tencent, Invesco
6	RazorPay	Fintech – Payment Gateway	1	7.5	Oct-2020	Bangalore	Matrix Partners India, Tiger Global, Sequoia Capital India, DST Global
7	Polygon	Web3 Infrastructure-Dapps	10	7.08	Feb-2022	Bangalore	Coinbase Ventures, Sequoia Capital India, Tiger Global, SoftBank
8	PayTM	Fintech-Payments & Walet	1.7	6.66	Feb-2015	Noida	Saama Capital, Elevation Capital, Alibaba, Berkshire Hathway
9	Ola Cabs	Mobility – Ride Aggregator	1.6	3.5	Mar-2015	Bangalore	Tiger Global, Matrix Partners, Steadview, SoftBank, Tencent
10	BYJUS	Edtech	1	3	Jan-2018	Bangalore	Aarin Capital, Sequoia Capital, Lightspeed Ventures, Tencent, General Atlantic, Tiger Global

Top 10 Most Valuable Unicorns in the World

S.No.	Company Name	Sector	Current Valuation ($B)	Date of Entry	Location	Major Investors
1	ByteDance	Media & Entertainment	225	April 2017	China	Sequoia Capital China, SIG Asia Investments, Sina Weibo, SoftBank Group
2	SpaceX	Industrials	150	December 2012	United States	Founders Fund, Draper Fisher Jurvetson, Rothenberg Ventures
3	SHIEN	Consumer & Retail	66	July 2018	Singapore	Tiger Global Management, Sequoia Capital China, Shunwei Capital Partners
4	Strope	Financial Services	50	January 2014	United States	Khosla Ventures, LowercaseCapital, capitalG
5	Databricks	Enterprise Tech	43	February 2019	United States	Andreessen Horowitz, New Enterprise Associates, Battery Ventures
6	Canva	Enterprise Tech	25.4	January 2018	Australia	Sequoia Capital China, Blackbird Ventures, Matrix Partners
7	Revoult	Financial Services	33	April 2018	United Kingdom	Index Ventures, DST Global, Ribbit Capital
8	Epic Games	Media & Entertainment	31.50	December 2018	United States	Tencent Holdings, KKR, Smash Ventures
9	Fanatics	Consumer & Retail	31	June 2012	United States	SoftBank Group, Andreessen Horowitz, Temasek Holdings
10	OpenAI	Enterprise Tech	29	July 2019	United States	Khosla Ventures